Trading Time Seasonality in Commodity Futures: An Opportunity for Arbitrage in the Natural Gas and Crude Oil Markets?

For fixed maturity, under the no-arbitrage assumption, futures prices should follow a martingale with respect to the trading time, at least under the pricing measure. Therefore, a prominent display of trading time seasonality under the physical measure raises warning signs and can only occur by means of strong seasonality in the pricing kernel. We show that for natural gas and crude oil, trading time seasonality is present to an extent where it may violate the no-arbitrage assumption. We provide three layers of evidence. The first layer is descriptive only, the second involves the Kruskal--Wicksell test for establishing trading time seasonality, and the third is in the form of a trading strategy, which exploits trading date seasonality. This strategy can produce statistically significant positive alphas in the CAPM context, thereby indicating the possibility of an arbitrage.